UPDATED: Aug 24, 2020
It’s all about you. We want to help you make the right coverage choices.
Advertiser Disclosure: We strive to help you make confident insurance decisions. Comparison shopping should be easy. We partner with top insurance providers. This doesn’t influence our content. Our opinions are our own.
Editorial Guidelines: We are a free online resource for anyone interested in learning more about auto insurance. Our goal is to be an objective, third-party resource for everything auto insurance related. We update our site regularly, and all content is reviewed by auto insurance experts.
The word deductible in the insurance industry gets thrown around more often than a solo cup at a frat party. But — as if insurance weren’t already confusing enough in the first place — not all deductibles are created equal.
For example, medical insurance deductibles and car insurance deductibles work in completely different ways. And it’s important to understand exactly how your automotive insurance deductible works before you get into an accident or something happens to your vehicle.
Understanding your deductible is an integral part of knowing how to file an auto insurance claim.
This not only helps you manage the claims process in a way that turns out in your favor, but it can also help you make decisions about your insurance policy that can save you money over time.
Read on for an explanation of how deductibles work and when the deductible can work in your favor or against you. To see how much you can save, use our FREE comparison tool to get insurance rates now.
How Deductibles Work
For starters, not every claim you file necessarily requires a deductible payment from you. With regard to liability coverage, for example, there is no financial responsibility for you to pay a deductible before your insurance company pays out your claim. As a matter of fact, you will most likely only have to pay a deductible if you are filing a claim against your Collision or your Comprehensive coverage.
If your vehicle gets into a collision with any other vehicle or object, the repairs to your vehicle will be paid for based on your collision coverage. The average deductible for this type of coverage is anywhere between $500 to $1,000, but you can adjust as necessary depending on how much you can afford to pay for your premiums.
Comprehensive coverage protects you from other incidentals – including theft, hail damage, fire, or other acts of nature. On almost all car insurance policies, the deductible for your Comprehensive coverage should be the same as the deductible for your Collision coverage. Many insurance companies combine these two coverages together for the sake of simplicity. Enter your zip code below to view companies that have cheap auto insurance rates. Secured with SHA-256 Encryption
Enter your zip code below to view companies that have cheap auto insurance rates.
Secured with SHA-256 Encryption
When the Deductible Amount Works in Your Favor
The lower your deductible is, the more you will save money in the event that you do have to file a claim. As we said, the average deductible that most drivers choose falls somewhere between $500 and $1,000 per claim — but in some states and with some companies, you may be able to choose a $250 deductible, or even qualify for what’s known as a “vanishing deductible”, which means you won’t owe any money on your first claim if you meet certain criteria. In the table below, you can see how much money you would end up saving if your vehicle sustained $7,500 worth of damages and you needed to file a claim to fix it.
Sounds a little too good to be true, doesn’t it? Just choose a lower deductible, and you won’t have to worry about your finances in the event that you get into an accident, or that something else happens to your vehicle. Unfortunately, it’s not that simple.
When Your Deductible Doesn’t Work in Your Favor
In case you haven’t noticed, insurance companies really don’t like spending money by paying out claims. It cuts into their profit margin, and since almost all insurance companies are private businesses, their bottom line is at the top of their priorities list.
This means that there’s a trade-off when you choose a low deductible in order to save yourself money in the future. Your insurance company will charge you more in the short-term by increasing the amount of your premiums so that their financial burden will be less in the event that you have to file a claim.
This can be an expensive gamble if you are tempted to choose a low deductible despite the higher premium. If you’re a careful driver, and nothing happens to your vehicle, here’s how much you could end up spending just to make sure that the temporary financial hardship of a car accident doesn’t cause a detrimental inconvenience to your livelihood: